Donald Trump’s the Oprah of trade levies.
“You get tariffs, you get tariffs, you get tariffs, everybody gets tariffs!”
He’s also a media hound who can’t stand to see anyone or anything get more press than him which is why, rather than let Americans enjoy the single-biggest sporting event of the year on Sunday evening, he bombarded the air waves with vague allegations of fraud in Treasurys (“There could be a problem. Maybe we have less debt than we thought.”), the abrupt cancelation of the dollar’s smallest unit of account (“I have instructed my Secretary of the US Treasury to stop producing new pennies.”) and, of course, tariff threats.
Anyone shipping aluminum or steel to the US will face a 25% duty, Trump said, without providing a timeline or any other details to speak of. Taken at face value, Trump’s announcement means both Canada and Mexico will in fact face the 25% levies Trump threatened, ordered then postponed in rapid succession earlier this month — at least on aluminum and steel.
Obviously — and I say that wondering if this is actually obvious to Trump or whether it’s just a happy coincidence — China’s exports of the metals would be squeezed most under the levies, not directly, but rather through re-exports. Long story short, China uses an extraordinary amount of metal domestically, but between the property crash and depressed consumers, Beijing has a glut and the Party’s leaning into exports to prop up growth.
Despite US trade restrictions aimed at curbing the flow of Chinese steel and aluminum, it finds its way into America regardless either figuratively (as countries which import it on the cheap from Beijing then export their domestically-produced metal to the US) or literally (as countries buy unfinished product from Xi, refine it, then sell it on to the rest of the world).
In theory then, across-the-board, universal US levies on steel and aluminum will throw a spanner in the works for China, which is at pains to keep its mills open in the face of a real estate meltdown that’s now in its fourth year. Those mills will take whatever they can get for their superfluous supply. The result is downward pressure on prices and an impossible situation for non-Chinese producers who simply can’t compete.
This is well-worn territory, and successive US presidents, Trump included, proved generally powerless to correct the “problem.” I put problem in scare quotes because, without wanting to hurt any feelings, not all the blame resides in Beijing.
Yes, Chinese industrial policy and the CCP’s notoriously unscrupulous trade practices give its domestic producers a leg up, which is to say this particular playing field’s the furthest thing from level. But arguably — and I’m not sure this really is arguable — US steel production wouldn’t be competitive anyway.
After decades of decline, the cost of modernizing America’s industrial base such that it’s in a position to recapture lost market share is presumably enormous. Even if you could make the Rust Belt “great again,” those are union jobs. Between pay and benefits, the cost of that labor simply isn’t comparable to a low-cost producer, let alone the low-cost producer (i.e., China). The US is tilting at windmills here.
But that’s Trump: Windmill-tilter extraordinaire and, it should be noted, someone who actually attacks windmills. In addition to the new levies on metals, Trump said he’s planning reciprocal tariffs on anyone who currently taxes shipments from the US.
As ever, I’d modestly suggest Trump’s protectionism won’t end up accomplishing much. Certainly, US manufacturing isn’t on the cusp of any renaissance, and households are already wary of tariff-related price hikes.
A Reuters article published Monday quoted Yiwu-based Abby Jin, who buys products in China for foreign customers, including those who supply US consumer markets. “We can respond [to Trump’s tariffs] by slight[ly] reducing our profit margins or adjusting costs,” she said, but added that, “In the end, the additional costs will be passed on to the end consumers in their country, meaning they will ultimately bear the consequences of their own economic policies.”
“households are already wary of tariff-related price hikes.”
I had a conversation with the beer manager at a local store. I expressed worry about the impact of tariffs on beers imported from Europe. He answered “You’re not alone. We have many customers stockpiling imports before they hit.”
No surprise, but then I asked if US producers would raise prices to match import price hikes, he looked around and said “well, that’s what some sales reps are telling us.”
So we get a inventory build followed by an inventory drain. If the inventory in question is held at consumers, an inventory drain is hard to distinguish from falling demand.
H-Man, there was an article (which escapes me as I type) that talked about the tariffs on steel and aluminum would basically hit a lot of other countries, including Mexico and Canada, but not China so much.
Did you read this article? The one you’re commenting on? Something tells me you didn’t. Or else you just skimmed it.
In 4 yrs, if Americans who voted for Trump are not economically better off- then with hindsight, this next 4 yrs. will be just a temporary blip. So far, things are moving in the wrong direction (as far as improving the economic situation for the majority of American voters).
“We’ll see what happens!”
Will most Americans who voted for Trump be able to objectively assess being economically better off in 4 yrs? The majority of his voters believe what they want to believe regardless of the truth.
Priceless.
+1
“I know windmills very much. They’re noisy. They kill the birds.”
“They say the noise causes cancer.”
“I’ve studied it better than anybody I know.”
a very stable genius